At the beginning of 2015, the Dow Jones Industrial Average opened at 17,832. As of yesterday’s close, it was at 17,814… a loss of 0.05%. How can you make money in this sideways market?
Though he doesn’t usually jump on these investors’ bandwagons, over the next two minutes, Steve McDonald shares some great advice Warren Buffett and John Bogle have recently given.
Transcript:
I almost never jump on the Warren Buffett or, even my hero, the John Bogle bandwagon. Yes, they have done amazing things with money. But I have never been able to understand how that helps you or me. Or, more importantly, how I can make any money.
But when they give usable – and, by the way, what I consider great advice – it is worth listening to.
Here’s what they recently had to say about the current market and how to make money in it.
Ignore the noise.
I know a lot of people have trouble understanding or acting on simple advice. But when you consider where the market is sitting now and how it has been moving sideways for some time, this one is important.
When they say noise, they are talking about the volatility and the losses it drives. And this is especially significant for retired investors.
You have to ignore the volatility!
The unceasing movement of the stock market to try to accurately and instantly price thousands of assets has to produce ups and downs. It is unavoidable and is being exaggerated by the huge move we have seen since 2009.
And you have to learn to live with this. That means not selling just because the price drops, or you’re never going to make a dime.
Bogle said, and I quote:
“Don’t pay a lot of attention to the volatility in the marketplace; all the noises and jumping up and down along the way are really just emotions that confuse you.”
And that jumping up and down that drives the small investor to jump in and out of the market is responsible for virtually all of his or her losses.
And this behavior has resulted in the little guy making almost nothing for the past 20 years in the market.
That’s right.
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At best, he’s making about one-half of what the indexes are returning. And that’s not enough!
The crazy idea that selling at a loss – what the little guy calls “cutting their losses” – after the market has sold off, doesn’t do anything but cost you money. And that is crazy.
Buffett’s advice? Ignore it.
Will your investments go up and down? Yes. Will it cost you money to guess when to get in and out? Absolutely, yes!
And it is the emotions that drive our decision-making when prices drop, not data, that are the problem.
This is virtually everybody’s downfall.
The retired cannot replace the money they lose in the markets. And the emotion-driven, irrational selling and buying behavior, driven by ups and downs, do nothing but lose money.
You must find the balance that will allow you to own the appropriate stocks for your age, your risk tolerance and your ability to absorb or replace any losses, and still stay in the market.
That’s where you make your money.
Take a look back at your losers. I know you’ll see irrational selling at the bottom and irrational buying at the top, again and again.
Learn to ignore the noise.
Good investing,
Steve